Moving your loan from one lender to another could save you money if you get better terms. However, there are some things you need to consider before deciding whether it is the right option.
Here are some things you need to know if you want to switch your loan to another company.
How to switch your loan to another provider
Moving from one lender to another isn’t like changing your mobile phone contract or switching to another utility company.
When you move your loan, what you are actually doing is taking out a new loan with a new lender and using the money to pay off the old loan.
The first thing you need to do is find out from your existing lender the total amount you must pay to clear your loan in full. This is called an ‘early settlement figure’ and will sometimes include a fee or additional charge on top of the remaining balance.
Once you know this figure, you know how much money you will need to borrow from your new lender.
Just because you request this information doesn’t mean you have to pay off your loan early. Depending on the size of your current loan, how much you have paid already and the interest rate and charges, you may decide there is no benefit to switching. If you do want to settle in full, you will have 28 days from when you make the request.
Early settlement fees
The Consumer Credit (Early Settlement) Regulations 2004 limit the amount that lenders can charge for early repayment.
If you have 12 months or less remaining on your loan, the lender can charge up to 28 days’ interest. If you have over 12 months left, the lender can add an extra calendar month.
Interest rates are dependent on various economic factors and are constantly going up and down, so you may find that the interest rates being offered now are lower than when you took out your original loan. If this is the case, then you could save money by switching.
Another thing you may want to consider is taking the loan over a shorter term. By paying off the loan faster, you could reduce the total amount of interest you pay. A shorter loan term may be an option if your income has increased since taking out your original loan.
Money transfer credit cards
Another option you might want to consider rather than taking out a new loan is to pay off your existing loan with a money transfer credit card.
These are credit cards that are specifically designed for this purpose and often have an interest free period. They can also be more flexible in terms of allowing you to change how much you pay off each month.
However, there is usually a transfer fee involved and, once the interest-free period ends, the new interest rate could be higher than the one on the loan.
This can be a good option if you are confident you can pay off the balance before the end of the interest-free period. Just make sure you account for any transfer fees when making your decision.
Key points to remember
The most important point to remember when considering switching is to factor in the total cost, including early settlement fees and transfer fees. If the total you would pay on the new loan is more than the total you would pay on the old loan, then it might be better to stick with your current provider.
About Morses Club
At Morses Club, we understand that planning for those sudden costs isn’t always possible, even when you are careful with your money. We specialise in providing cash loans to cover any financial emergencies that crop up; you can find out more about what we do in our about us section.